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ASX-listed explorers, producers unfazed by Mali's new mining code

ASX-listed explorers and producers in Mali say the country's new mining code announced Aug. 21 will not materially impact companies that already have mining or even exploration permits granted under the prior 2012 code.

Reuters reported Aug. 22 that Mali's Mines Ministry had announced a new mining code the previous day that sought to redress the "shortcomings" of a 2012 law.

The new code will reduce the "stability period" under which investments are protected from changes in the country's fiscal or customs regimes, which dictate terms such as tax as well as import and export quotas and duties, from the current 30 years. Miners will also no longer be exempt from value-added tax during production.

Changes to these stability clauses have been opposed by international mining companies in Africa, which typically seek them when operating on the continent to lower their risk.

Mali Lithium Ltd. Managing Director Chris Evans said in an interview Aug. 26 that it is still "quite a way in the future" before any companies will be affected by the new code, as it will impact those yet to apply for exploration permits.

Evans said while he has yet to sign a deal with the government for his Goulamina lithium project in Mali, his company's stability clause will be for 30 years as its exploration permit was granted under the 2012 code.

Mali Lithium was in a trading halt Aug. 26 pending an announcement on its exploitation permit which has been with the prime minister's office for sign-off according to a July 31 release.

Both Evans and Oklo Resources Ltd. CEO Simon Taylor said the VAT exemption removal would not have a material impact for them, and may even be offset by a separate fuel or tax credits individual companies could negotiate with the government.

While Reuters said it was unclear what the new stability period would be, Taylor said the new length will be 15 years.

Resolute Mining Ltd. CEO John Welborn said in an interview that his company is "comfortable" with the terms of the deal he signed in April for its Syama gold mine.

The deal guarantees a new income tax rate of 25%, down from 35%, while also guaranteeing that royalty rates, taxation regime and fiscal provisions can only be improved by future legislative amendments.

It also exempts Syama from Malian customs duty on the importation of fuel, and the government also extended Syama's mining permit by 10 years. Mali's government already has a 20% stake in Resolute's Malian-registered 80% subsidiary Sociêtê des Mines de Syama S.A., which owns the mine.

Sympathy for government

Welborn said he has "sympathy" for the government's efforts to "improve and standardize" its mining code.

He said VAT has been an issue for miners more generally across the whole continent. "In some ways it's a positive that the Malian government is moving to resolve the uncertainty around the application of the mining code legislation," Welborn said.

Perth, Australia-based financial advisory Hartleys Research Analyst Paul Howard, who covers Resolute, said in an interview he did not expect an exodus of investors because of the move, which has been flagged for months.

"Paying a bit extra tax won't scare investors away that much," Howard said, particularly given those willing to invest in Africa have already factored in such risks.

In fact, Howard still upgraded his 12-month price target on Resolute from A$1.59 per share to A$2 earlier this month — driven both by a bullish gold sentiment and its recent acquisition of privately-owned Toro Gold Ltd. with its Mako gold mine in Senegal — even when factoring in the miner paying the full tax rate.

The International Institute for Environment and Development said in a December 2018 note that stabilization clauses in force in Mali "no longer serve simply to protect legitimate investor interests."

"Instead, due to the super-profitability of many projects, they freeze an imbalanced fiscal relationship negotiated years ago, in favor of private companies and to the detriment of the government," the institute said.